Every spring
NAIFA-California faces off against local governments who try to
levy a business license tax on agents.
The good news is that the law and the CDI are on
NAIFA-California's side.
NAIFA-California has
long maintained that California law exempts insurance agents
from municipal business taxes. Specifically, Article XIII,
Section 28(f) of the California Constitution imposes a premium
tax on insurers "in lieu of all other taxes and licenses..." At
least since 1914, this tax exemption has been extended to duly
appointed insurance agents.
Since 1976, the
exemption does not extend to insurance brokers; however, the
California Insurance Code expressly excludes from the definition
of "broker" those individuals who transact life and/or
disability insurance on behalf of a life and/or disability
insurer. Hence, an agent will not be subject to a business
license tax IF they hold an in-force notice of agency
appointment and that business involves life or health insurance
sales or any other sales for which an agent/insurer relationship
exists.
In January 1998, the
California Department of Insurance (CDI) reaffirmed this
position in a letter responding to a joint request from the
Independent Brokers and Agents of the West (IBA West) and the
Oakland city attorney. Specifically, the CDI stated that an
in-force notice of agency appointment "establishes a virtually
irrefutable presumption that a producer is an agent of the
insurer which filed that notice."
In short, as a
matter of constitutional law, local governments are prohibited
from levying business license taxes. If you are facing
such a challenge from a not-so-enlightened municipality, please
utilize the
Tax Exemption Letter provided. If you have further
questions, contact
David V. Dellinger, Executive Vice President or our
Legislative Advocates.
